February 27, 2004

Brazil and Argentina to Rival US in Soybean Exports

US will need to brace itself for strong competition in soybean and derivatives exports with South American rivals represented principally by Brazil and Argentina, and to a lesser extent Paraguay, which is expected to last for at least 10 years.

Structural changes have taken place in the global soybean sector in recent years with South America rapidly expanding its production base and competing for a larger share of the global export market for bean, meal and oil, and China switching from import of soy meal to soybean.

While the US has traditionally been the dominant soybean producer, a significant expansion in South America's production since the 1990s has challenged the American position so much so that South America surpassed the US in soybean production in 2002-03.

Large tracts of land are still available especially in Brazil that could be beneficially used for crop production. In addition, infrastructure facilities in South America have improved considerably in recent years with infusion of investment in transport and marketing facilities. This development has helped narrow the post-production gap between the US and South America.

Interestingly, the gap of six months between the harvest of soybean in the US and South America is proving to be advantageous as it ensures uninterrupted availability of the oilseed throughout the year for the world market, as opposed to competing major crops such as rapeseed, groundnut and cottonseed.

The production pattern makes global soybean supplies much steadier throughout the year and has additional implications for use, stockholding and price patterns, the US Department of Agriculture observed in its report on agricultural baseline projections, adding that the growing presence of South America in the global market has implications for annual soybean prices.

Analysis has indicated that a 1 per cent increase in South American soybean production would decrease the US season-average farm price by one-fourth of 1 per cent.

South America's soybean production from 1997-98 till 2001-02 averaged 63 million tonnes, much below the US' 74.7 mt for same period. In 2002-03, South America's production jumped to 92.2 mt with significant increase in Brazil and Argentina, versus 74.8 mt of the US. Projected output figures for 2003-04 for South America is 99 mt compared with drought-reduced 65.8 mt of the US.